Range-Bound Trading Observed By Global Equities

Despite a holiday-shortened trading session, major global equity markets absorbed a lot of economic data indicating that the U.S. economy is slowing down from its strong post-pandemic growth, while inflation also seems to be cooling gradually. 

In the past fortnight, the S&P 500 Index continued to hit record highs, though the market's gains were narrow. Growth stocks outperformed value stocks by 4.15 percentage points, while small- and Mid-Cap stocks saw losses. In the first trading week of July, the Nasdaq Composite, heavy on technology, ended the week 73.71 per cent above its lows since the market began rebounding in mid-to late-2022. The Dow Jones Industrial Average which is more focused on value, gained 32.79 per cent in the same period. 

Two important indicators of U.S. economic growth are the ISM reports on manufacturing and services. Both showed contraction in June, with the manufacturing sector struggling for 19 of the last 20 months. Initially, consumers spent more on goods during and after the pandemic, but have since shifted their spending to services like travel and hospitality. The U.S. services sector, a major economic driver contributing over 70 per cent of GDP, showed some signs of slowing down. A positive aspect of a slowing U.S. economy and labour market is the potential for reduced inflation. Recent data suggests that inflation might ease. Both the ISM manufacturing and services reports showed declines in the prices paid indexes, which predict inflation for goods and services. Additionally, wage growth in the nonfarm jobs report slowed from 4.1 per cent to 3.9 per cent year-over-year, indicating possible lower services inflation. The upcoming consumer price index (CPI) inflation report will be closely watched for further signs of declining inflation. 

In Europe, the STOXX Europe 600 Index rose 1.01 per cent in local currency terms in the past fortnight. Political stability improved as the far right in France didn't secure a majority in the legislative elections, and the Labour Party won the UK general election on July 4 with a large majority. Major stock indexes also rose, with France’s CAC 40 up 2.62 per cent, Germany’s DAX up 1.32 per cent, and Italy’s FTSE MIB up 2.51 per cent. The UK’s FTSE 100 added 0.49 per cent. 

Political stability improved as the far right in France didn't secure a majority in the legislative elections. In the UK, Sir Keir Starmer’s Labour Party won the general election, ending 14 years of Conservative rule. Rachel Reeves will be the first female Chancellor of the Exchequer (finance minister). 



In the UK, Sir Keir Starmer’s Labour Party won the general election, ending 14 years of Conservative rule. Rachel Reeves will be the first female Chancellor of the Exchequer (finance minister). Germany's manufacturing base weakened in May, with orders falling 1.6 per cent and industrial production contracting 2.5 per cent. France's industrial output also declined by 2.1 per cent. 

Japan's stock markets gained in the past fortnight, with the Nikkei 225 Index up 3.36 per cent and the TOPIX Index rising 2.65 per cent in local currency terms, both reaching all-time highs. This was partly due to a weaker yen, which benefits export-focused industries. However, the yen strengthened later in the week. Japan's 10-year bond yields climbed to about 1.1 per cent, the highest since 2011, before easing later in the week along with U.S. Treasury yields. Chinese equities fell as weak manufacturing data raised concerns about the slowing economy. The Shanghai Composite Index and the CSI 300 both saw modest losses, while Hong Kong’s Hang Seng Index gained 0.46 per cent during the holiday-shortened trading week.